Section 89 of the Civil Procedure Code (CPC) aims to promote alternative dispute resolution (ADR) mechanisms in India’s judicial system. It was added to reduce court burdens by encouraging litigants to settle disputes outside conventional court proceedings. However, the provision has significant drafting error and ambiguities that created confusion in its implementation.
The Provision as Originally Drafted
Section 89 CPC as originally drafted states:
Settlement of disputes outside the Court:
(1) Where it appears to the court that there exist elements of a settlement which may be acceptable to the parties, the court shall formulate the terms of settlement and give them to the parties for their observations and after receiving the observations of the parties, the court may reformulate the terms of a possible settlement and refer the same for:
a) arbitration;
b) conciliation;
c) judicial settlement including settlement through Lok Adalat; or
d) mediation”
Subsection (2) further elaborates on the processes to be followed when disputes are referred to these various ADR mechanisms. However, this seemingly straightforward provision contained serious drafting errors that significantly hampered its effectiveness.
Major Ambiguities in Section 89
The Supreme Court, in the landmark case of Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. Pvt. Ltd. (2010)[1], identified two major flaws in the drafting of Section 89:
First, the definitions of ‘judicial settlement’ and ‘mediation’ under clauses (c) and (d) of Section 89(2) were mixed up. According to the Court, what was described as ‘judicial settlement’ in clause (c) was actually the procedure for mediation, and what was described as ‘mediation’ in clause (d) was actually the procedure for judicial settlement. This mix-up created significant confusion in implementation.
Second, the requirement under subsection (1) that courts must “formulate the terms of settlement,” obtain parties’ observations, and then “reformulate the terms” before referring the matter to ADR was deemed highly impractical as it defeats the purpose of the section. In Afcons, the Supreme Court called this approach “putting the cart before the horse,” noting that if courts were already formulating detailed settlement terms, there would be little left for the ADR forums to do.
The Supreme Court’s Resolution in Afcons Case
The Supreme Court took an extraordinary step to correct these drafting errors through judicial interpretation. The Court made two significant interventions:
It interchanged the definitions of ‘judicial settlement’ and ‘mediation’ in clauses (c) and (d) of Section 89(2). After this correction, the clauses now read:
(c) for ‘mediation’, the court shall refer the same to a suitable institution or person and such institution or person shall be deemed to be a Lok Adalat and all the provisions of the Legal Services Authorities Act, 1987 shall apply as if the dispute were referred to a Lok Adalat under the provisions of that Act;
(d) for ‘judicial settlement’, the court shall effect a compromise between the parties and shall follow such procedure as may be prescribed.
The Court clarified that courts need not formulate or reformulate detailed terms of settlement before referring matters to ADR. Instead, they should simply describe the nature of the dispute briefly and make the reference. This interpretation made the process more practical and aligned with the intent of the provision.
Now, the Simplified Procedure Under Section 89 would be that;
After pleadings are complete, the court should familiarize itself with the case facts
The court should determine if the case is suitable for ADR
If unsuitable, the court should record reasons in writing
If suitable, the court should explain the five ADR processes to parties
The court should ascertain if parties are willing to try arbitration or conciliation
If parties agree to any ADR process, the court makes the appropriate reference
If the ADR attempt fails, the court continues with the regular trial
Judicial Settlement: A Misunderstood Concept
One of the most misunderstood aspects of Section 89 has been the concept of ‘judicial settlement.’ In Afcons, the Supreme Court defined it as “a settlement of a civil case with the help of a judge who is not assigned to adjudicate upon the dispute.” This definition suggests that the trial judge before whom the case is pending should not ideally attempt judicial settlement themselves but should refer it to another judge.
However, as Justice S.U. Khan points out in his analysis[2], this interpretation isn’t necessarily mandated by the section itself. He argues that there is no absolute bar on the trial judge attempting judicial settlement. The section uses the word ‘Court’ not ‘Trial Court,’ suggesting flexibility in application. Justice Khan’s practical experience suggests that judges can develop persuasion skills to facilitate settlements, with his own success rate being about one-third of cases.
Which Cases Are Suitable for ADR Under Section 89?
The Afcons judgment provided valuable guidance on which cases are suitable for ADR under Section 89 and which are not:
Cases suitable for ADR include:
All cases relating to trade, commerce, contracts, consumer disputes, and tortious liability
Cases arising from strained relationships
Cases where continuing relationships are necessary despite disputes
Cases not suitable for ADR include:
Representative suits involving public interest
Election disputes regarding public offices
Cases involving grant of authority by courts
Cases involving serious allegations of fraud, forgery, coercion, etc.
Cases requiring court protection
Consent Requirements for Different ADR Mechanisms
An important clarification made in Afcons concerns which ADR processes require consent of parties:
Arbitration and conciliation require mutual consent of all parties. Courts cannot force parties into these processes without consent.
Mediation, Lok Adalat, and judicial settlement can be referred by courts without requiring parties’ consent, as parties can always return to court if settlements are not acceptable.
Conclusion
Section 89 of the Civil Procedure Code represents a significant legislative attempt to integrate Alternative Dispute Resolution mechanisms into India’s formal judicial system. Despite its initial drafting flaws; particularly the confusion between judicial settlement and mediation definitions in clauses (c) and (d), and the impractical requirement for courts to formulate settlement terms before referral; the Supreme Court’s landmark interpretation in Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. Pvt. Ltd. (2010) has clarified these ambiguities through judicial intervention. By interchanging the definitions, simplifying the referral process, and providing clear guidelines on which cases are suitable for ADR, the Court has transformed Section 89 into a workable provision.
[1] 2010 (8) SCC 24
[2] Khan SU, Former Judge, Allahabad High Court, at present Chairman, Judicial Training & Research Institute, U.P., Lucknow. Judicial Settlement under Section 89 C.P.C. A Neglected Aspect. –. https://ijtr.nic.in/Article_chairman%20S.89.pdf.